Spatial financeWhere capital meets hazard, exposure and transition
Economics for development finance
Economics and development economics give development finance its appraisal tools: cost-benefit analysis of projects, debt sustainability of sovereigns, incidence of tariffs and subsidies, and the macroeconomic channels through which shocks reach project revenues and public budgets.
What economics and development economics does here.
Economics and development economics study how societies produce, distribute and consume resources and how living standards change. They estimate the costs of shocks and the trade-offs among policy responses. In development finance, critical infrastructure and economic development, economic analysis quantifies indirect losses as shocks spread through supply chains and labour markets. It supports prioritising investment in prevention and recovery. The canonical description is on the STEM Commons.
Economic appraisal of a project
Costs and benefits are valued at economic prices with shadow prices for foreign exchange, labour and carbon, discounted, and tested against changes in cost, demand and delay before an economic rate of return is stated.
Debt sustainability context
Published debt sustainability analyses are read for the baseline, the stress tests and the thresholds that set the room for new borrowing, guarantees and contingent liabilities.
Tariff and subsidy incidence
Household survey data are used to show who pays and who benefits when a utility tariff, a fuel subsidy or a connection charge changes, by income group and location.
03Monitor
Econometric model.
The screen a team would use to follow this method: its measures, states and decisions. Names are examples and values are illustrative.
Econometric model
Development finance · Economics for development finance · Run R-2182
Estimates stableGRA · Development Finance Nexus
Estimates
robust standard errors
Pipeline value
0.30
0.12
[−0.1, 0.7]
Yes
Projects screened for climate risk
0.46
0.16
[−0.1, 0.4]
No
Safeguard incidents
0.22
0.16
[0.0, 0.9]
Yes
Disbursement ratio
0.66
0.17
[0.0, 0.2]
No
Method card
Method
Economics and development economics
Sample
10,165 obs
Design
panel, fixed effects
Label
MODELLED
Residuals by group
Econometric model: the screen's structure, terms and states for Development finance.Example names and illustrative values; a design, not a record or a live system.
04Data
What the method consumes.
Datasets and records used by economics and development economics on this platform, with the role each plays and the label its values carry. Sources are listed in the source register.
Data
Role
Label
National accounts and fiscal data
Macroeconomic and budget context
Published statistics
World Bank International Debt Statistics
Debt stocks, flows and terms
Published statistics
Household income and expenditure surveys
Incidence and affordability
ESTIMATED
Project cost and demand estimates
Appraisal inputs
ESTIMATED
Price indices and exchange rates
Real values and currency conversion
Published statistics
05Scenario model
Policy paths and what they do to the risk.
How three families of instruments change a risk outcome over time with adoption lags, coverage and compliance, the policy scenarios behind transition and physical risk assessments. Scenario: named assumptions about the future, not a forecast.
Controls
Baseline trend of the outcome
2.0% a year
Coverage of the instrument
70%
Compliance
75%
Effect size, against the teaching value
100%
Years ahead
20 years
Readouts
Largest reduction at the horizon
Regulation
Its reduction against the baseline
21%
Numbers, methods and sources
Year
Baseline
Regulation
Economic incentive
Information and capacity
0
100.0
99.5
98.8
99.1
1
102.0
101.2
100.1
99.8
2
104.0
102.5
101.1
99.9
3
106.1
103.5
101.6
100.0
4
108.2
103.7
101.8
100.7
5
110.4
103.2
101.7
102.1
6
112.6
102.0
101.6
103.9
7
114.9
100.4
101.6
105.9
8
117.2
99.2
102.1
108.0
9
119.5
98.6
102.9
110.1
10
121.9
98.9
104.2
112.3
11
124.3
99.7
105.7
114.5
12
126.8
101.1
107.4
116.8
13
129.4
102.7
109.4
119.2
14
131.9
104.5
111.4
121.6
15
134.6
106.5
113.5
124.0
16
137.3
108.5
115.7
126.5
17
140.0
110.7
118.0
129.0
18
142.8
112.9
120.4
131.6
19
145.7
115.1
122.8
134.2
20
148.6
117.4
125.2
136.9
Methods
Tools of government Hood (1983), The Tools of Government, Macmillan
Carrots, sticks and sermons Bemelmans-Videc, Rist and Vedung (1998), Transaction
Diffusion of innovations Rogers (2003), Diffusion of Innovations, Free Press
Uncertainty fan (parameter Monte Carlo) Spiegelhalter, Pearson and Short (2011), Visualising uncertainty about the future, Science 333
One-at-a-time sensitivity (tornado) Saltelli and others (2008), Global Sensitivity Analysis: The Primer, Wiley
Data
The model runs on the teaching values set by the controls. To calibrate it for a place, read it against these admitted layers and series, which this page's map can draw:
Borders Natural Earth
Cities Natural Earth
Policy paths and what they do to the risk. Illustrative teaching model: it runs on the values set by the controls, not on measured data. Methods: Tools of government (Hood (1983), The Tools of Government, Macmillan); Carrots, sticks and sermons (Bemelmans-Videc, Rist and Vedung (1998), Transaction); Diffusion of innovations (Rogers (2003), Diffusion of Innovations, Free Press).
Models are assessed against historical episodes and out-of-sample data. Parameter estimates are compared across studies and identification strategies.
Check
How it is done
Switching values
Each appraisal states how far cost, benefit or delay must move before the decision changes
Reference class comparison
Cost and demand assumptions are compared with outcomes of completed similar projects
Consistency with macro projections
Project assumptions on growth, prices and exchange rates are checked against the published macroeconomic framework
Independent review
Appraisal methods are reviewed by economists not involved in preparing the project
Equilibrium models may understate disruption and nonlinear cascades. Informal economies and non-market losses are poorly measured.
07Exposure, loss and capital
What economics for development finance means for exposure, loss and capital.
The exposure, loss, scenario and capital views a risk officer, supervisor or ministry of finance would ask for, with the frameworks they report against. Structures follow supervisory and actuarial practice. Values are illustrative: never prices, ratings or advice.
Transmission channels
How a shock in economics for development finance reaches credit, market, underwriting, liquidity and operational risk, and feeds back.
Channel structure after the Basel Committee's work on climate-related risk drivers and transmission channels; links shown are typical paths, not estimated exposures.
NGFS climate scenarios · Network for Greening the Financial SystemIFRS S2 Climate-related Disclosures · ISSBTCFD recommendations · Financial Stability Board TCFDPrinciples for the effective management of climate-related financial risks · Basel Committee on Banking Supervision
What are the limits of economics and development economics in this field?
Equilibrium models may understate disruption and nonlinear cascades. Informal economies and non-market losses are poorly measured.
How are results checked?
Models are assessed against historical episodes and out-of-sample data. Parameter estimates are compared across studies and identification strategies.
Are the values on this page real?
The data names, roles and checks are real descriptions of practice. The canvas shows a design of the method's use, not a run; no result is reported here.
Reports is the Consortium's quarterly publication. What you know about this subject can become evidence, a case or a correction in the next edition, credited to you and published under CC BY 4.0 where it is your own work.
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